||The 'Wild West' of Online Vehicle Transactions
Old Marketing Regs Keep Dealers at Risk
States are struggling with rules for selling and advertising cars online.
For example, one state law puts an auto dealer at risk when somebody else takes his dealership's ad, alters the information then posts it on a different Web site. The process is known as scraping.
As one dealer puts it, retail auto marketing online is still "the Wild West." State regulators are meeting this week and will discuss scraping and other online marketing issues such as:
For an example of the confusion, consider what happened to Virginia dealer Mike Duman. A year ago Duman received a certified letter saying he was violating state advertising regulations. The Virginia Motor Vehicle Dealer Board's complaint? Internet listings for two vehicles failed to disclose the amount of the document processing fees.
- Fees paid to lead generators
- Cross-border shipments
- Content of advertising
Duman says that the ads he authorized showed the fee. But when he checked the listings in question, he was taken aback. They didn't list the fee. And they were on Web sites that he didn't even know existed -- an example, he says, of the way listings mushroom out across the Internet.
These days, the listings spread from major car-sales sites, with which a dealer has a contract, to secondary sites linked to those major sites. After that, the listings may be grabbed by "scraper" sites that pull listings from other sites to bulk up their own offerings. And sometimes those sites trim details from the original ad to fit their formats, Duman says.
"A dealer in a lot of instances does not have any knowledge of what's getting posted to other sites," says Duman, who adds he forwarded printouts of 34 similar online listings from Virginia dealers to the state.
"I printed off all 34 of those, and I faxed them to the motor vehicle board," Duman recalls. "I said, 'Two wrongs don't make a right, but obviously there's a problem here.'
"They were legitimate dealers, and they didn't even know this was going on."
The state declined to take action against Duman, a state official said.
Recycled vehicle listings are just part of a broad array of issues that can land dealers in trouble as they negotiate the rapidly changing world of online marketing.
Some in the industry question whether traditional concepts such as brokering, bird-dogging, curbstoning and state advertising restrictions are outdated in the digital world. But they're still on the books and may trip up dealers using new marketing techniques.
Dealers held responsible
The discussion has prompted the National Association of Motor Vehicle Boards and Commissions to include a panel on the impact of Internet marketing at its meeting this week in Alexandria, Va.
Greg Kirkpatrick, president of the association, says dealers "are just getting inundated with vendors offering the latest sales boost via the Internet."
But Kirkpatrick, executive director of the Arkansas Motor Vehicle Commission, says state officials hold dealers responsible for their online marketing.
"It's on you," he says. "You've got a responsibility that what you're doing with a third party is compliant."
Kirkpatrick says many regulators feel current statutes are flexible enough to deal with online marketing. He adds that any changes will be on a state-by-state basis. This creates a patchwork of laws, Kirkpatrick concedes.
"I feel that there will be less uniformity than there should be, maybe, for this issue," he says, adding that a national policy would make sense.
That's a sore point for third-party vendors. Scott Painter, CEO of TrueCar Inc., says the Santa Monica, Calif., company has "worked really hard to comply" with laws in every state. TrueCar was hit by several states saying that, among other issues, its business model of charging dealers a $299 fee per vehicle sold amounted to bird-dogging. Traditionally, bird-dogging is the practice of dealers paying individuals to steer buyers to their stores.
Painter says TrueCar has worked out state-by-state business models to avoid causing legal problems for dealers. He says the cost and complexity of the effort makes it a piece of proprietary intellectual property. In describing it, Painter only will say, "There are a number of different flavors of how we bill."
50 sets of laws
Painter takes pains to say TrueCar is focused on complying with state laws, not trying to change them. But he notes that working with 50 different sets of laws is tough.
"The complexity of this is that none of them are really federal regulations," Painter says. "There are 50 different states with 50 different legislated outcomes."
Similarly, Donna Sechrist, senior vice president for dealer initiatives at Edmunds.com, says the online shopping site painstakingly picked its way through state laws when developing a "premiere dealer" feature in 2010. Dealers pay a subscription fee to be featured on vehicle search pages.
"We haven't had to change our business model since we launched that," Sechrist said. "There's a lot to look at because it varies from state to state."
But many industry players argue that Internet commerce is not significantly different from brick-and-mortar commerce. Mike Jackson, CEO of AutoNation, the largest U.S. dealership group, says Internet companies should follow the same rules that his stores have to.
"The states are holding us to one set of regulations. You can't exempt the digital world," Jackson says. "If I have to meet those regulations, they should have to meet them. It should be one rule book.
"Now, the digital people like to be exempt from all regulation because they're new-age. But, I'm sorry: At a certain point, everybody has to play by the same rule book."
James Moors, director of franchising and state law at the National Automobile Dealers Association, agrees. Digital commerce itself may be new, he says, but practices such as bird-dogging and advertising invoice price -- banned in many states -- have the same effects as in the past.
"One of the things that people need to focus on is there's a reason for the regulations," Moors says. "A motor vehicle is a fairly significant purchase, and the dealers are regulated. A lot of the recent issues that have come up seem to be new, but they're not."
Dealers and regulators focus on licensing requirements for dealers and, in some states, salespeople. Bruce Gould, executive director of the Virginia Motor Vehicle Dealer Board, says there needs to be a clear line between licensed dealers and online vendors that want to set up deals.
More state regulation
Regulators have taken pains to professionalize auto retailing, Gould says. In Virginia, for instance, a new-car salesperson is subject to background checks and must pass a test. Having another party negotiate price or other terms of a deal evades those requirements, he says.
The upshot, Gould and other regulators say, is that sale and delivery of a new vehicle must take place in a state-licensed dealership -- a requirement in all states. David Wilson, owner of Wilson Automotive Group in Orange, Calif., says that's one of the earliest lessons he learned when he started selling cars.
"The first thing they taught me is you can't sell a car on the phone," Wilson says. "If you get a guy on the phone, you've got to get him into the dealership. You can't sell a car on the Internet."
Wilson adds that he has encountered situations similar to Duman's with vehicle listings popping up in unexpected places online: "They're selling leads to each other. It's scurrilous, it's unregulated. It's the Wild West out there."
Others see a need to at least review existing laws. Tim Jackson, president of the Colorado Automobile Dealers Association, says dealers remain at risk of unintentionally stepping outside the rules. Although the TrueCar controversy brought the problem to light, other third-party online sites' practices jeopardize dealers, Jackson says.
"These laws need to be reviewed and probably to be renewed in light of the Internet," he says.
Meanwhile, state regulators will pursue violations, Jackson adds. And customers will get angry about paying a document processing fee that wasn't part of the price they saw online. In either case, the problem lands on the dealer.
"They're having a lot of stuff thrown at them, there's no doubt about it," Jackson says. "It's put the dealers in the cross-hairs of all this."
(Source: Automotive News, 09/17/12)
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